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When Xi Jinping lined up the leaders of the world’s biggest tech companies for a class photo during his 2015 Seattle visit, the man standing in the top row, second from the left, had plenty of reason to smile. Not only had 32-year-old Cheng Wei been invited to a room full of A-listers — the chief executives of Amazon, Facebook, Apple and Alibaba were all there — but his chief rival, the CEO of Uber, had been kept out.
Cheng’s ridesharing app, Didi Chuxing, was only three years old at the time, but the photo foreshadowed Didi’s spectacular rise. The next year, Uber threw in the towel in China, leaving Didi Chuxing to enjoy a near monopoly in the largest commuter market in the world. And over the next five years, Cheng expanded Didi’s operations well beyond China — the company now operates in 15 countries with plans to launch soon in Western Europe — and well beyond ridesharing. With on-demand food delivery to on-demand freight services to the co-development of vehicles with automakers, Cheng now talks about a future in which Didi is the one-stop-shop anytime anyone (or anything) needs to go anywhere — a single app able to calculate complex transportation routes that encompass rail, buses, carpools, private cars and bikes.
“You better believe they have grand ambitions,” says Tu Le, founder and managing director of Beijing-based advisory firm Sino Auto Insights. “They want to go down in history as the first Chinese global brand.”
Indeed, as Didi prepares to go public in the U.S., many analysts say the company that Cheng built could join an elite club. While nearly 40 percent of the world’s unicorns are based in China, only five Chinese companies trading in the U.S. have a market cap that exceeds the $100 billion mark. Didi — with $25 billion in capital raised from investors that include Apple, Toyota, Alibaba, Tencent and SoftBank — could become the sixth when it debuts in July on the New York Stock Exchange.
“Transportation is a multi-trillion dollar revenue market globally,” says Arun Sundararajan, a business professor at New York University and author of The Sharing Economy. “You’re talking about a market that is bigger than the market that spawned Google and Facebook. The room to grow is immense.”
[Didi] is a company that saw incredible growth and development. It has had to deal with the political backlash of becoming a little too big for its britches.
Jacob Parker, senior vice president at the US-China Business Council
Didi’s core business, the taxi hailing app, already boasts a global reach of 30 million drivers, 550 million users and a recent milestone of 60 million trips in a single day. The company now controls 90 percent of the Chinese ridesharing market and is rapidly expanding its global reach.
But while tech companies like to talk about “network effects” — the notion that a company with enough momentum can become a global phenomenon that is too big to topple — ridesharing is a local business, with local regulations and quirks and hardly a sure thing. And if Didi benefited from being in the good graces of the Chinese government back in 2015, the company’s biggest challenge today seems to be on the home front. In recent months, the authorities have repeatedly fined and reprimanded Didi, and Beijing — which is trying to rein in big tech firms it has long allowed to operate as near monopolies — could be a major obstacle as Didi tries to gain command of the global mobility market.
“The market norms that exist in China are constantly evolving,” says Jacob Parker, senior vice president at the US-China Business Council. “This is a company that saw incredible growth and development. It has had to deal with the political backlash of becoming a little too big for its britches.”
UBER AMBITIOUS
Cheng Wei was 29 in 2012 when he left an eight-year stint at Alibaba that had taken him from a sales job to vice president of Alipay, the payment platform for the e-commerce juggernaut. He launched Didi Dache, a taxi-hailing company, with $10,000 in seed money from a coworker at Alibaba, Wang Gang.
The premise was simple: Tired of struggling to hail cabs and get around Beijing’s congested streets, Cheng saw an opportunity to build an Uber-like app for China. But instead of private cars — an impractical service in a country where only 17 percent of people own cars — Didi Dache worked with existing taxi companies to facilitate rides. Dozens of other startups had the same idea, but Cheng’s ambition set his venture apart.
“There were lots of easy ways out along the way where Cheng could have still become a billionaire in China,” says Sundararajan, who met Cheng in 2015. “The fact that Didi has said, ‘We’re going to conquer the world solving this difficult problem and dominating this massive industry,’ is a testament to the kind of personality Wei has.”
In the early days, Cheng could be found at taxi stands at 4 a.m., chatting and smoking with drivers as he tried to recruit them to join his service, according to Hans Tung, managing partner at GGV Capital, which has invested in Didi. Tung says Cheng embodies jianghu, a code for martial artists that emphasizes Confucian values of bravery, righteousness, and loyalty.
“He knows how to build relationships with people, and he knows you have to build an ecosystem,” Tung says. “He’s very in-it-to-win-it regardless of who the other side is.”
In July 2013, Tencent backed Didi with a $15 million investment, and by the end of the year, Didi Dache had 55 percent of the ridesharing market, with its Alibaba-backed competitor Kuaidi Dache controlling the rest.
Two months later, Uber dipped its toes in the Chinese market with luxury car services in three cities: Shanghai, Guangzhou and Shenzhen. By then, Cheng had raised $118 million, but that was a pittance compared to what Uber, already a unicorn, was capable of spending. In June 2014, Uber raised $1.2 billion in a funding round that gave it a $17 billion valuation.
But despite Uber’s capital advantage, analysts say that Cheng made several master strokes that helped it ultimately prevail over its American competitor. The first was hiring Jean Liu, a Harvard graduate and managing director of Goldman Sachs Asia, as president and chief operating officer. The daughter of Lenovo cofounder Liu Chuanzhi, Liu had deep connections across the tech industry in both China and Silicon Valley that helped her bring in game-changing deals for Didi.
Moreover, Liu’s easy-going personality has made her a media favorite: She has been featured in numerous publications including Fortune, Time and Fast Company. She is also perhaps the most famous female executive in China and has embraced her role as China’s Sheryl Sandberg: She launched a women’s network at Didi and has prioritized making it a place where women can achieve work-life balance and advance their careers. Women comprise 37 percent of Didi staff and a quarter of its management — in the average Chinese corporation, they comprise just 9 percent of the leadership.
Once on board, Liu moved quickly to consolidate the market and bring in capital to fend off Uber, which had partnered with Baidu to localize its Chinese offering. She orchestrated the second master stroke against Uber by leveraging her connections at Alibaba and Tencent to convince the rivals to merge Didi Dache and Kuaidi Dache in February 2015, giving the combined company a near monopoly. The resulting company, Didi Kuaidi, which would later become known by its present name of Didi Chuxing, raised $3 billion that year.
Liu was also not afraid of challenging Uber publicly, calling it a “knife fight” in 2015. But while it may have been gorey for the companies, the competition between Didi and Uber turned into a field day for drivers and passengers alike. Both companies doled out subsidies to attract users to their apps, and both companies tolerated it when drivers began gaming the system and faking rides. By the end of 2015, Uber pledged to spend $1 billion a year in China to win the world’s largest transportation market. Didi, meanwhile, had launched a string of new products to keep up, including a private car service of its own, a chauffeur service for car owners that want an on-demand driver and a social carpooling service called Hitch.
Ultimately, however, Uber’s strategy had an achilles heel in China: It took advantage of the quasi-legality of ride hailing and the great variety in how it was overseen by local governments. That ended in 2016 when the Chinese government began discussing national regulations that would require companies to not just register vehicles and drivers but to seek regulatory approval for their activities and adjust prices when deemed necessary by city governments. Ride hailing companies would be encouraged to merge with state-owned taxi companies.
As the government put pressure on Uber, Didi’s leadership team divided and conquered to take advantage of its position. Cheng used nationalism to motivate employees to keep up the fight, allegedly pepping up workers with patriotic songs and telling them Didi would not lose to a foreign company on Chinese soil. Didi also began forming alliances with other ridesharing companies fighting Uber. It invested $100 million in Lyft, Uber’s chief rival in the U.S., and formed a partnership with Grab in Southeast Asia and Ola in India.
Liu, meanwhile, kept fundraising. In May 2016, she scored a major coup: a $1 billion investment from Apple. It was an unusual investment for Apple, but the company’s CEO, Tim Cook, said it was a strategic move that would help Apple “learn more about certain segments of the China market” and deliver strong returns. It was also marketing gold. Cook tweeted a photo of him and Liu hailing a car using Didi’s app and raved about Liu in Time magazine, calling her a disruptor. “By analyzing commuter patterns the way oceanographers track the tides, Didi may help traffic jams go the way of the flip phone,” he said.
“It was a huge PR win for Didi,” says Bill Russo, founder of Automobility in Shanghai. “The image of foreign brands is they have a halo image effect, and Didi really played that.”
The fundraising round that included Apple also drew investments from SoftBank and resulted in a $7.3 billion boost to Didi’s coffers. Two months later, and a week after the government officially announced national ridesharing regulations, Uber admitted defeat. In a $35 billion deal, Didi absorbed Uber’s China operations: Uber took a 17.7 percent stake in Didi, and Didi invested $1 billion in Uber.
“The regulations made the situation inconceivable for Uber,” says William Kirby, a professor of business administration and China studies at Harvard University. “It gave a timetable for Uber to decide: Was it going to stay or sell? And if it was going to sell, would it sell at a good point compared to where it might be a year or two later? I think they were smart and wise to sell when they did.”
Bloomberg estimated that Uber spent $2 billion in its bid to win China and never turned a profit. Yet, today, Uber’s shares in Didi alone make its efforts in China a great return on investment. In September, when Uber was in talks to sell part of its shares, they were worth $6.3 billion.
“I don’t think Uber messed up. They were just late,” says Jeffrey Towson, a private equity investor in Bangkok who follows China’s digital economy. “They didn’t get the gold medal, but they got silver.”
The Uber defeat made Didi a global superstar, and Cheng and Liu took the leverage and ran with it. In 2017, Didi formed a strategic partnership with 99, the largest ridesharing service in Brazil. Within a year, it would own it and expand its presence in Latin America. The company also branched into Australia and Japan, made investments in the ridesharing companies Bolt and Careem, and launched a bike service in China. By 2019, Didi had even partnered with Volvo to produce modified XC60 cars for a robotaxi pilot program in Shanghai — a partnership the two companies expanded this year.
Analysts say that Didi’s robust app, having overcome major engineering challenges to operate across China’s varied terrain, is the envy of its competitors. Drivers can easily find hot spots where they are most likely to pick up a ride in the next 15 minutes, find all of the toilets in a given city, and identify auto repair shops as well as gas stations where Didi has negotiated discounted rates.
And the company’s foray into artificial intelligence — both for autonomous driving and mapping capabilities — could herald a new era of “smart cities.” Today, Didi has so much information about how traffic moves around China that it helps cities manage flow. In about two dozen Chinese cities, its data determines when an additional lane should open or street lights should change, making it indispensable to local authorities and very much part of the public infrastructure.
I don’t think Uber messed up. They were just late… They didn’t get the gold medal, but they got silver.
Jeffrey Towson, a private equity investor in Bangkok
“Uber was very aggressive, but they don’t innovate for a damn,” says Towson. “Didi is the mobility super app. And they’re merging all of the data — bus data, metro data, traffic light data — to get us closer to a transportation smart city, to a point where traffic becomes dynamic.”
“They’re sort of in a different class in terms of that integration of the technology and the physical world,” notes NYU’s Sundararajan. “Uber and Lyft may have some of these capabilities, but they haven’t implemented them in cities. Didi, almost in real time, had agreements with the city governments.”
‘WILD HORSES’
Given the social and political context of China, many of the country’s tech companies assume roles in the public infrastructure.
“There is an expectation that monopolies need to cater to the government and need to serve the public,” says Shuang Frost, a postdoctoral fellow and adjunct professor at the University of Southern California who has studied Didi since 2014.
Many of China’s tech companies show their good citizenship like Didi has by leveraging their data to solve everyday problems. As Jared Huang, senior product director at Didi, told The Wire, “We are thinking of how to use the data to help bring a better life to our users and city transportation.”
But this mission wasn’t always baked into Didi’s operations. It had to be learned the hard way. In 2018, two female passengers were murdered by their drivers when they hailed cars through Hitch, Didi’s social networking component. There was public outcry as passengers started coming forward with additional allegations of sexual assault against drivers, and a social media hashtag, #womankilledinDidiHitch, went viral.
With Didi clocking 30 million rides a day at the time, its system was getting out of hand. Beijing’s Ministry of Transport launched an investigation that found Didi had violated multiple safety rules and fined the company. According to Reuters, officials said, “The company’s management of people and vehicles is out of control.”
Didi had to act quickly in order to rebuild public trust. It fired two executives, temporarily suspended Hitch, and made a $20 million commitment to improving its customer service and safety practices — including adding 3,000 additional staff members.
Huang’s team was tasked with building out safety features in the Didi app. Among them was a button to call the police, which Didi points out has been adopted by both Uber and Lyft. The company also built an algorithm that identifies anomalies such as a driver going off-route so it can monitor the risk of each trip and intervene early. If a passenger doesn’t buckle up, for instance, Didi can use the in-car speaker system to remind them — an intrusion that mainly serves to underscore the fact that Didi is watching.
“We tell the drivers and passengers that Didi is protecting you to make them feel safe,” says Huang, who studied criminology and psychology when developing the company’s safety features.
Didi also worked hard to get back in the government’s good graces. It now records in-car conversations and holds them for a week, and it has announced plans to hire 1,000 members of the Chinese Communist Party to lead safety efforts and act as role models to other drivers. Didi drivers even receive “patriotic education classes.”
But such gestures of fealty may no longer be enough. When Beijing halted Ant Group’s public filing last November, analysts say it sent a strong signal that any company that has the potential to upset the status quo could be targeted as a threat.
“These digital platform companies are the wild horses of China’s economy,” says Russo, of Automobility. “They’ve done wonderful things, but they’ve also gone so far beyond the boundary that they’re actually becoming their own economy. Ant Group created a rival banking system. Didi is a child of that ecosystem, and it may be competing with the interests of the local — if not central — authorities.”
Indeed, the fact that taxi companies are state owned complicates things for Didi. In recent years, Didi has buried its cab-hailing feature in its app to favor its own fleet of private cars, according to Frost. Although taxi drivers initially saw a bump in income from the increased efficiencies introduced by Didi, they have grown resentful.
“Now, taxi drivers are pretty marginal to ride hailing platforms,” says Frost, noting that Didi relies heavily on migrant workers who frequently sleep in the cars to meet the quotas placed on them by middlemen labor contractors. “People think companies like Didi are horizontal. They are actually hierarchical. It takes a lot of middle management to incentivize the drivers.”
As a result, some taxi drivers have formed cooperatives that offer their own platforms for ridehailing. And in December, the Chinese Taxi Industry Association asked the government to investigate Didi’s takeover of Uber and “other monopolistic behavior on the platform.”
These digital platform companies are the wild horses of China’s economy.
Bill Russo, founder of Automobility and chair of the Auto Committee in Shanghai
The government seems to have listened. While Beijing let the Kuaidi and Uber mergers pass without much scrutiny, it issued fresh antitrust directives in February to “prevent and stop the monopolistic behavior of internet platforms and protect fair competition in the market.”
A month later, Didi Chuxing and Meituan were each fined 1.5 million yuan for violating price law and granting subsidies. Didi was also hit with a 500,000 yuan fine in April, along with Tencent and nine other internet firms, for not seeking permission before launching a joint venture with SoftBank in 2018.
Local competitors, meanwhile, are circling. And it’s not just the small competitors, such as Caocao, hoping to take a piece of Didi’s pie. Baidu — which had been Uber’s original partner in China — recently announced the launch of robotaxis in a geofenced area of Beijing’s Shougang Park. And Meituan, which offers a host of aligned services including food delivery, has in the past flirted with ridesharing services.
“In China, there will always be others that will want to come knock you off the hill if you get too big — and that could include the government,” says Russo, who added that Didi’s challenges only grow as it leaves the mainland to IPO. “When they leave China, they’re not guaranteed any favorite son status.”
Still, while no one is sure how far Beijing is willing to go after the Ant Group takedown, Didi’s upcoming IPO could mark a significant milestone for China’s internet companies. If the company manages to deliver a $100 billion valuation, many say it marks the coming of age for Chinese internet companies.
“These companies have been developing for a decade, and there’s still a sense that they have a lot more growth in them than other sectors,” says Andrew Collier, founder of Orient Capital Research. “This is China’s moment on the services side of the internet. This is Didi’s moment.”
Ambreen Ali is a writer whose work has appeared in The Washington Post, Agence France-Presse, Congressional Quarterly, Roll Call, Seattle Post-Intelligencer and numerous other publications. @ambreenali